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Hope springs eternal: French bondholders and the Soviet repudiation (1915-1919)

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  • John Landon-Lane
  • Kim Oosterlinck

Abstract

By their extreme nature, repudiations rarely occur. History is therefore crucial to analyze their impact on bond prices. This paper provides an empirical study based on an original database: prices of a Tsarist bond traded in Paris before and after its repudiation by the Soviets. A structural vector autoregression is used to identify shocks to this bond that are orthogonal to shocks hitting a proxy for the Paris bond market, the French 3% rente. French market shocks are thus disentangled from repudiation specific shocks hitting the Russian bond. Consistent with expectations no major Russian shocks appears before the 1917 revolution. For 1918, shocks are mainly related with bailouts or hopes of partial bailouts. In 1919, however, the nature of shocks changes as they can be explained either by the negotiations with the Soviets or by the fate of the White Armies. In view of these elements, we argue that the bonds’ value were subject to a “Peso problem”. Their prices essentially reflected expected extreme events that never took place.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers CEB with number 05-013.RS.

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Length: 38 p.
Date of creation: Nov 2005
Date of revision:
Publication status: Published by: Centre Emile Bernheim, Bruxelles
Handle: RePEc:sol:wpaper:05-013

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Keywords: repudiation; sovereign debt; secession; Russia; Soviet; war; country break-up.;

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References

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Cited by:
  1. Waldenström, Daniel, 2010. "Why does sovereign risk differ for domestic and external debt? Evidence from Scandinavia, 1938-1948," Journal of International Money and Finance, Elsevier, vol. 29(3), pages 387-402, April.
  2. Oscar Bernal Diaz & Kim Oosterlinck & Ariane Szafarz, 2009. "Observing bailout expectations during a total eclipse of the sun," DULBEA Working Papers 09-01.RS, ULB -- Universite Libre de Bruxelles.

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